Commerzbank: Building a laboratory for the next era of banking

Kenny MacIver — January 2019

The international commercial bank has created an R&D powerhouse — main incubator — to deliver technologies that will define future success in financial services.

In recent years, there has been a febrile atmosphere in financial services as thousands of fintech companies have sprung to life with ambitions to challenge previously secure niches in banking, insurance, payments and elsewhere.

The response by the world’s largest financial services companies has been wide-ranging, as they seek to counter potential market disruption by embracing new digitally inspired innovation models. The approaches include any combination of:• Betting on start-up acquisitions and/or building their own startups from the ground up• Establishing internal innovation units, separate and autonomous from core operations, and often located in tech hubs such as London, Silicon Valley, New York and Berlin • Becoming an incubator to invest in and nurture young tech companies • Drawing on the expertise of established technology suppliers to co-create new products and services • Partnering with and funding research institutes and universities to get early access into developments• Restructuring the company’s core operations as a start-up by adopting new ways of working such as Agile, Design Thinking and Lean Startup.

Getting that mix right will determine whether today’s incumbents are able to transform themselves into future leaders — or see their leadership wane.Banking of the future

A great case in point is Commerzbank, Germany’s 149-year-old business and private banking giant. Over the past five years, it has created its own mix of technology innovation approaches — and shown it is not afraid to change that blend to match evolving priorities. And the executives driving that strategy through its wholly owned subsidiary main incubator are only too happy to share their vision and the lessons they’ve learnt in trying to create the “laboratory for tomorrow’s bank.”

The original idea to bring a wave of innovation into the bank from outside dates back to 2013, outlines Matthias Lais, founder and COO of main incubator. “New competitors were coming up — both fintech and the so-called GAFA companies of Google, Amazon, Facebook and Apple — and we wanted to be one of the first to take advantage of the new opportunities and possible partnerships by proactively shaping the banking of the future,” he says.

The feeling was that creating an external engine for innovation would be more effective than building an internal one. main incubator (a play on words that references the Main river running through the financial services hub and Commerzbank headquarters of Frankfurt) pursues three goals. The first is to invest in fintechs and technology-driven startups, just as any other venture capital company might do, but with a deeper motivation of understanding the mindsets and technology approaches of those innovators. The aim is that the investments (typically of €250,000 to €2 million for 5% to 15% of the startup’s equity) would give access to solutions that could enhance and expand the bank’s product offerings to corporate customers or to enhance the efficiency of Commerzbank’s back office.

Commerzbank headquarters, Frankfurt on Main

The second goal of main incubator is to respond to and adopt trends and emerging technologies by building own prototypes for new, innovative banking products. Together with colleagues from relevant departments from Commerzbank main incubator develops prototypes across twelve emerging technologies, that have been identified as having high potential impact — blockchain, big data, machine learning, artificial intelligence, biometrics, robotics, virtual reality, cloud, open API, wearables, IoT and quantum computing. As a prime example, main incubator’s blockchain and DLT (distributed ledger technology) lab is regarded as a pioneer in the field, with pilot projects both within the bank and at customers such as KfW, SAP, Audi and Thyssenkrupp..

Last but not least, main incubator attaches great importance to community building. “Digitization and innovation are not a one-man show. We know about the importance of fair partnerships, goal-oriented cooperation and fruitful discussion. By organizing our own events and participating in various formats we support the startup and tech ecosystem,” says Lais.

The combination of these three main objectives paves the way for new solutions and innovations and thereby contributes to Commerzbank’s transformation to a digital technology company.Making the connection

The challenge of connecting the innovation model more effectively to Commerzbank was addressed head-on in 2017. Main incubator shifted its business model away from pure venture funding and incubation to become the official R&D unit of Commerzbank.

“It was recognized that the model we had pursued was good but that the positioning within Commerzbank was wrong. First, main incubator’s [investments] were previously only focused on use cases for corporate banking,” says Lais, despite the fact that the majority of its 15 million customers are for private and small business services. So in 2017, main incubator’s focus [moved] beyond corporate banking into overall strategy, with Commerzbank’s head of strategy and its CIO overseeing its activities.

“We are still investing in startups but more from a broader technical perspective now, always with a view to the use case of any technology for Commerzbank and its clients,” says Lais.

That has made the flow of innovation into the bank quicker and easier, he says, while increasing the value the company derives from its investments. It now counts 14 companies, including: • Gini, a provider of AI-based natural language processing software that extracts data from images of documents (invoices, receipts, contracts, etc) that can be integrated with a business customer’s banking service. Gini is already the standard for image data transfer by business banking customers in Germany• AUTHADA, whose software enables users to store data from their official ID card on their smartphone, enabling easy, card-free authentication of their identity using Near Field Communications• Candis, which provides online software for automated accounting• E-bot7, an AI-driven chatbot for customer services• Vermietet.de, a platform for real estate management.Keeping some distance

There is still a strong justification for main incubator to maintain a degree of independence from Commerzbank, Lais argues. “We see ourselves as a laboratory for the future of financial services. Research and development is our daily business, which also means we need a certain amount of freedom for our work. In building prototypes we are well connected within Commerzbank. Nevertheless, we need the flexibility and outside status, as we are dealing with future technologies that have not yet been completely explored. As an R&D unit it is our mission to explore and to develop innovations. However, as a subsidiary of Commerzbank it is our responsibility to protect the data of our clients. By working as an external entity with a great network in Commerzbank, we succeed in both ways.”

That point is reinforced by main incubator project manager Augustin Danciu: “From a technical perspective we are completely separate; but from a business perspective we are very close — close to the executive board and part of the bank’s group strategy.”

Augustin Danciu, project manager, main incubator

Five years in, does the innovation model it has backed go some way to insulate Commerzbank from ongoing disruption in the financial services market? Lais believes so. “We are on the right track. The spirit of cooperation and co-creation has grown enormously on both sides — startups and banks — in the last few years.”

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